Compensation Policy

Our Bank utilizes the following guidelines as the basis of its Compensation Policy. These values are taken into consideration in all compensation applications.

The Bank’s compensation system shall be:

Fair,

Transparent,

Based on measurable and balanced performance targets,

Encouraging sustainable success,

Consistent with the Bank’s Risk Management principles.

Principles of Compensation Policy ("CP")

Principles of the Compensation Policy

The fundamental objective of the Compensation Policy is to establish a fair working environment whilst balancing internal and external factors. In doing so, internal factors are accomplished through compensation based on “equal pay for equal work” and “pay for performance” principles. In terms of external factors, data collected as a result of salary surveys conducted by independent research firms are taken into consideration.

Equal pay for equal work: All employees shall be paid a salary that is in line with the work value of the job they perform. In this regard, the “Salary Bands” describing the value of job performed by them are taken as a base. In addition, wage scales containing minimum and maximum salary amounts for all positions within the Bank are also used. Employee’s salaries shall be determined within the respective salary band based on their experience and performance.

Pay for performance: All employees shall receive salary adjustments according to their performance scores given by their managers based on objective criteria and according to their current position within the salary band. Among the employees entrusted with the same tasks, it is intended to reduce the wage differentiation by making a higher increase in salaries of the employees whose salary has remained relatively lower albeit their high performance.

Market Sensitivity: The Bank shall take into account results of general salary surveys conducted by independent firms with respect to the Turkish Banking Industry and overall country when determining the salaries and bonuses of all employees. In determining salaries and bonuses, the basic approach of the Bank is to ensure that a fair compensation level is set for each employee on the basis of total income to be earned by the employees during the year.

Compliance with Risk Management principles: The Bank shall use a compensation model that takes into account the concepts of risk management implemented across the Bank. In this regard, compensation policies which are compliant with the Bank’s long-term objectives and risk management structures and which prevent assumption of excessive risks by the Bank are adopted and applied. Where the Bank’s capital adequacy is imperiled or whenever deemed necessary, the Bank may adopt and follow a more conservative policy and approach in all compensation and waging issues, especially the variable payments.

Rewarding sustainable, long term success: In rewarding periodic achievements of the employees, particularly in bonus payments, a rewarding is adopted at an appropriate term depending on the nature of the job performed. The system is arranged in such manner to directly affect the previous payments of the employees if and when required by taking into consideration the failures that may be detected later or the cases or facts that may be learned in the future with respect to the past periods.

Principles of the Performance Management System ("PMS")

Principles of the Performance Management System (PMS)

The fundamental principles of the Bank’s Performance Management System are to form a transparent, measureable model, whereby employee performance shall be assessed by the relevant managers together with the employee and shall provide a fair and comprehensive feedback.

The fundamental principles of the Bank’s Performance Management System are to create a transparent and measurable model, compliant with the Bank’s strategies, based on objective criteria, wherein not only the objectives and targets, but also the competences are assessed, together with the employee’s self-assessment as well, so as to provide a fair and comprehensive feedback.

Transparent: The employees are well informed about the criteria used in their assessments.

Measurable: All employees are expected to have transparent, measurable and objective performance objectives and targets, compliant with the Bank’s strategies, at individual and/or team level.

Pluralist (Multi-layer) Assessment: In assessment of performance of employees, in addition to the initial assessment by their direct-report manager, all employees shall also be assessed by their upper-level manager as well as therepresentatives of the Human Resources Department. All employees shall have the right to express their views and/or their disagreements with respect to the result/feedback in their performance assessments.

Competence Assessments: The employees are assessed over not only objective performance criteria, but also certain competences determined specifically for their job duties and positions.

Fair and comprehensive feedback: All employees shall have the right to receive also verbal feedback from their managers regarding their performance. To this end, during the assessment process, managers shall conduct a performance interview and evaluate the employee’s performance in reliance upon objective criteria and inform the employee in details of the means available to him/her for personal and career development.

Basic constituents of the salary

Basic Components of total compensation

Fixed Income Practices:

“Fixed Income” shallmean fixed salary payments made on a monthly basis. It consists of the base salary, premiums and other benefits. The base salary in essence is the payment determined according to the job duties performed by the employee and taking into account the criteria such as experience and performance.

Timing of Salary Adjustments: Salaries shall be increased once a year in May.

Types of Salary Adjustments: If and when the performance of employees of the Bank is determined to be at a particular level, two different types of salary adjustments are applied, namely Base Increase (refers to a rate of increase determined by basically taking inflation rate into consideration) and Performance Increase (refers to a rate of increase differentiated depending on the performance level of employees).

Variable Income (Bonus) Practices:

“Variable Income” shallmean variable payments made in cash or by non-cash means in order to reward the performance of the relevant employee in the subject period.

Timing: The Bonus payment timing varies depending on the job duties performed, and bonus payments are made in periods of 1, 3, 6 or 12 months according to the job duties. Bonus metrics to be used as the basis of these payments shall be the results of the relevant bonus period.

Bonus metrics: Basic criteria taken as a base for such job positions as Portfolio and Branch Managers having certain financial targets consist of mixed metrics such as the Customer Experience Score, Targets/Realizations, Profit, etc. Such criteria shall be jointly determined by the relevant lines of business, the Human Resources Department, and the Financial Planning and Analysis Department. As for the teams not having any financial targets, the group targets and/or non-financial individual targets are considered and treated as bonus metrics and criteria. All metrics/criteria shall be communicated to the employees in a transparent manner prior to bonus payment periods so that the employees can also review such metrics/criteria.

Bonus Budgeting: The budget for bonus payments shall be established by analyzing the data of potential compensation market, the overall performance of the Bank, the changes in the number of employees, and the targeted bonus rates, during preparation of the personnel budget of the respective year. The bonus budget shall be submitted to the Board of Directors for its approval.

Model for Bonuses Payable to Employees in Internal Control, Audit and Risk Management Functions: Pursuant to the Guidelines on Good Compensation Practices in Banks of BRSA (Banking Regulation and Supervision Agency), fixed salaries play an important role in waging and compensation of employees working in these units. Bonus payments to the managers and employees of the units covered by the internal systems will be determined by taking into consideration the performance of the relevant employees in their own units and functions, independently from the performance of the departments they supervise or control.

Determination of Identified Staff and Bonus Model Applicable on Them: Members of the Bank’s board of directors, and its senior (top echelon) managers, and other Bank employees believed to perform a specific function having a significant impact on the Bank’s risk profile in the light of the Bank’s own assessment are grouped in the identified personnel category.

Bonuses payable to employees considered and deemed as Identified Personnel as defined in the Guidelines on Good Compensation Practices in Banks of BRSA are paid in accordance with the principles decided by the Remuneration Committee and within the frame of format determined in the Guidelines on Good Compensation Practices in Banks of BRSA. Accordingly, a portion equal to 40% of variable salary is deferred for a minimum period of 3 years, and in addition, at least 50% of variable salary is paid by non-cash means. Furthermore, agreements are signed with the relevant employees with regard to cancellation and withdrawal of variable salary if and when required.

Disciplinary Penalties: Likewise, bonuses shall be reduced at varying levels depending on the type of the disciplinary penalties imposed on current employees.

Communication of Compensation Applications

Communication of Compensation Applications

Compensation applications of the Bank as well as the criteria on which such applications are based (such as performance, bonus criteria, reports, salary bands) are communicated to all employees via the INTRANET like all other HR applications. In addition, all changes made therein are also communicated by means of internal notices. All managers are informed about both the content of the periodic applications and all parameters of the payments to be made to them and their teams, during the periods of salary adjustments, bonus payments, etc.

Remuneration Committee

Remuneration Committee

The Board of Directors shall establish a Remuneration Committee composed of at least two directors having no executive duty in the Board of Directors and in charge of waging and compensation policies as a whole, with a view to establishing an independent and efficient waging and compensation system and monitoring and auditing compensation applications of the Bank on behalf of the Board of Directors. The Human Resources Department functions as a reporter in the Remuneration Committee.

Preparation and drafting of decisions regarding waging and compensation, particularly the decisions about compensation of identified employees, for submission to the Board of Directors for approval purposes, and regular monitoring of efficiency of waging and compensation policies and of their compliance with the Bank’s risk appetite and goals, and provision of opinions and support to the Board of Directors with respect to establishment of waging and compensation system and monitoring of its modus operandi, and supervision of waging and compensation of senior (top echelon) management of the units and functions within the frame of internal systems are under the responsibility of the Remuneration Committee.

Implementation of Policies

Application of the Policy

Changes and revisions in the contents of the Compensation Policy are decided upon a proposal of the Remuneration Committee and approval of the Board of Directors, and are put into effect and force by the Human Resources Department.